STUDENT
CHAPTER 4
MANAGERIAL
ACCOUNTING
PowerPoint Presentation by
Gail B. Wright
10TH EDITION
Professor Emeritus of Accounting
Bryant University
© Copyright 2008 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and SouthWestern are trademarks used herein under license.
BY
MAHER, STICKNEY & WEIL
STRATEGIC MANAGEMENT: COSTS,
QUALITY, & TIME
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Managerial Decision Making
LEARNING OBJECTIVES
1. Distinguish between traditional view of quality &
quality-based view.
2. Define quality according to the customer.
3. Compare costs of quality control with costs of
failing to control quality.
4. Explain why firms make trade-offs in quality
control costs & failure costs.
5. Describe tools firms use to identify quality control
problems.
Continued
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LEARNING OBJECTIVES
6. Explain why just-in-time requires total quality
management.
7. Explain why time is important in a competitive
environment.
8. Explain how activity-based management can
reduce customer response time.
9. Explain how traditional managerial accounting
systems require modifications to support total
quality management.
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☼
CHAPTER GOAL
☼
This chapter illustrates the significance of
quality.
Prizes recognize improvements in quality.
Japan: Deming Prize
US: Baldrige Quality Award
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International standards measure quality
ISO 9000: standards for quality management
ISO 14000: standards for communicating financial
impact of environmental issues
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LO 1
TRADITIONAL VIEW
The traditional view of quality assumes that
improving quality always requires increasing
costs.
Firms can reduce total costs by
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Producing lower-quality goods
Tolerating some level of defective goods
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LO 1
QUALITY-BASED VIEW
The quality-based view holds that firms should
always attempt to improve quality.
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Attempts to improve quality will succeed without
limit
Firms
Should not wait for inspections of finished products to
reveal defects
Must establish quality goals & procedures
Aim for zero defects
High quality pays for itself
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LO 1
Traditional View
Quality-based View
Quality increases costs
Quality decreases costs
Goods require inspection
Defect-free goods require no
inspection
Workers cause most defects
System causes most defects
Require standards, quotas, goals
Eliminate standards, quotas, goals
Buy from lowest cost supplier
Buy on basis of lowest total cost
Focus on short-run profits
Focus on long-run profits
EXHIBIT 4.1
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TRADITIONAL VS. QUALITYBASED VIEW
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LO 2
QUALITY: Customer View
3 success factors to meet customer requirements
Service
All the products features, tangible & intangible
Quality
Firm’s ability to deliver its service commitments
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Cost
Customers will buy product that provides them with
preferred mix of quality, service, price
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LO 2
VALUE CHAIN
Prevent quality
problems here
Design
Identify quality
problems here
Production
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Marketing
Distribution
Deal with unhappy
customers here
Customer Service
EXHIBIT 4.3
Research & Development
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LO 3
COSTS OF QUALITY
Prevention
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Procurement inspection
Processing control
Design
Quality training
Machine inspection
Appraisal
End-process sampling
Field testing
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LO 3
COSTS OF FAILING TO
IMPROVE QUALITY
Internal failure costs: detection before delivery
Scrap
Rework
Reinspection/retesting
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External failure costs: detection after delivery
Warranty repairs
Product liability
Marketing costs
Lost sales
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LO 4
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Is quality free?
Although initially quality
production is costly, in the long
run companies consider quality to
be free.
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LO 4
E!!!
MANAGERIAL APPLICATION
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Harvey Firestone believed
honesty was the keystone of
business. How did Firestone
react to its defective tires?
Firestone was more concerned
about the cost of fixing a
problem when it occurred.
Ultimately, the cost was higher
& their reputation tarnished.
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LO 5
TOOLS
Tools to identify quality problems include
Control charts
Cause-and-effect analysis
Pareto charts
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Produce signals about quality control
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LO 5
SIGNAL: Definition
Is information provided to a decision
maker.
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Warning signal indicates something is
wrong
Diagnostic signal suggests cause of
problem & possible solutions
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LO 5
CAUSE & EFFECT: Definition
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Is analysis that first defines the
effect & then identifies the cause.
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LO 5
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Pareto charts
illustrate
graphically the
problems or
defects.
EXHIBIT 4.7
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LO 6
JIT
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Factors for success in JIT
Total quality
Smooth production flow
Purchasing quality materials
Well-trained, flexible workforce
Short customer-response times
Backlog of orders
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LO 7
NEW-PRODUCT DEVELOPMENT
TIME: Definition
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Refers to the period between a
firm’s first consideration of a
product & its delivery to the
customer.
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LO 7
BREAK-EVEN TIME: Definition
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Refers to time required before the
firm recovers its investment in
new-product development.
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LO 7
BREAK-EVEN TIME EQUATION
Break-even time =
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(Investment ÷ Annual Discounted Cash Flow)
+
Time period from Project approval until Sales
begin
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LO 7
LIMITATIONS: Break-even Time
Break-even time
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Ignores cash flows after break-even point
Does not consider strategic, nonfinancial reasons
for new product
Varies from one business to next, depending on
product life cycles & investment requirements.
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LO 8
BALANCED SCORECARD:
Definition
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Reports an integrated group of
financial & nonfinancial
performance measures based on
vision & strategy.
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LO 9
TOTAL QUALITY
MANAGEMENT (TQM)
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TQM requires 5 changes to traditional
managerial accounting systems
System includes information to help solve
problems
Line employees collect information for feedback
Information should be available quickly
Information should be more detailed
Base rewards on quality, customer satisfaction
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CHAPTER 4
THE END
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